Looking towards the quotation on broker pages, I used to believe that european swaption smiles stick to moneyness. However I heard that at least in USD the world is more difficult: The normal vol (not the lognormal vol) sticks to something.Can anybody of the traders address this issue?

Not sure if I understand your q right.. Anyway, w.r.t. the interest rate options mkt, there is a general consensus that the distribution of prices is better represented by a normal, instead of a lognormal distribution. The main problem with the lognormal model is that as yield approach 0%, the model stops working "rationally." Sooo, dealers will look at risk reversals, daily coverage and other measures that are more "normal" in nature to price skews.The skew prices that ultimately are generated from the analysis, can easily be converted to lognormal skews, and this is generally how the broker pages report their skew marks/prices. The problem with these log-normal skews in IR options is that they will change as soon as the underlying market moves, as the analysis needs to be re-run on new strikes.Does that help at all?

Thanks for your reply. This is exactly what I'm interested in. I understand the problems with lognormals and that quotation is anywayin terms of the lognormal distribution.Can you be more specific which measures are used by brokers? Is there some standard to look at?

The lognormal distribution becomes complete crap as ylds approach 0%, so clearly it cannot be used for lower strike options. There is no standard for the brokers. Most of them report skews as Black vol skews. As soon as the market moves, these skews have to be re-calculated. The way the brokers know where the skews should be marked is quite simple. They guess and they ask the banks...As for how the dealers determine the skews, there are a number of ways. Some use CEV models, some normal models, some calculate daily coverage, and a lot is determined by supply and demand.